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Court of Appeal rules that a solicitor should not be subject to a non party costs order for failing to obtain after the event insurance

The court's jurisdiction to make a non party costs order (NCPO) against a solicitor who has acted under a conditional fee agreement (CFA) without the benefit of after the event (ATE) insurance has been the subject of two Court of Appeal decisions in quick succession. Yesterday's judgment in Heron and TNT (UK) Limited v MTG will come as some relief to many solicitors who have not secured an ATE policy on their client's behalf.

A number of applications have found their way before the courts where the successful defendant to litigation has sought to obtain a non party costs order against the solicitor who acted for the unsuccessful claimant under a CFA. Where the claimant's solicitors have failed to obtain ATE insurance to meet the defendant's costs and where the losing claimant does not have the funds to do so, defendants have claimed that the claimant's solicitors effectively "funded" or "controlled" the litigation. They have argued that this entitles the court to exercise its discretion under section 51 of the Senior Courts Act 1981 to make a NCPO in the defendant's favour against the responsible solicitor.

The construction of section 51 was outlined by Rose LJ in Tolstoy-Miloslavsky v Aldington who identified three categories in which NPCOs could be made against a solicitor: (i) if it is within the wasted costs jurisdiction; (ii) if is otherwise a breach of duty to the court; or (iii) if he acts outside the role of a solicitor.

Costs orders against non parties, including solicitors, are exceptional which means outside the ordinary run of cases. The non party must go beyond providing pure funding, must be a real party and substantially “control” the litigation. In other words to successfully obtain a NCPO against a solicitor it must be shown that the solicitor, rather than his client, was taking a lead in the litigation and effectively seeking to control its course. The ultimate question is whether in all of the circumstances it is just to make the order and it is inevitably a fact specific jurisdiction.

In Heron, Leveson LJ decided that a solicitor’s unconscious breach of duty in failing to arrange an ATE policy for a client was an insufficient basis upon which to make a NPCO against the solicitor. The court was particularly mindful that granting a NPCO in this case could open up the floodgates and potentially extend to every act of negligence by a solicitor in the conduct of litigation.

The case of Heron is hard off the heels of the detailed judgment of Flatman v Germany; Weddall v Barchester Health Care Ltd, which was handed down last month. In a leading judgment, again by Leveson LJ, the Court of Appeal rejected the argument that a solicitor’s funding of disbursements, without more, stepped “outside the normal role of a solicitor” or rendered the solicitor “a real party” to the action.

The recent case law on NPCOs is welcomed and provides much needed clarity on this area of law. The message from the Court of Appeal is clear. Cost orders against solicitors will only be allowed in exceptional cases.

Heron is also a useful reminder about the reliance to be placed on first instance decisions before the Court of Appeal. Having been referred by the appellant’s counsel to two first instance decisions Leveson LJ was uncompromising in saying “I deprecate an ever-widening reference to judgments which have no authoritative value and may be no more than examples of the exercise of judicial discretion.”